finance help...

Asked Sep 22, 2012, 04:08 PM
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1 Answer

The formatting I have is not correct but the answers are.. This assignment is due by the end of the night f

my class requires that I state the equation you are using and then use the interest factors from the appendix in your book. When using the factor, make sure to identify it as a PVIF, FVIF, PVAIF, FVAIF as appropriate along with the number of periods involved and the rate.

here are the problems with the wrong format.. can anyone please help me..

1.) You invest $1,000 in a certificate of deposit that matures after 10 years and pays 5 percent interest, which is compounded annually until the certificate matures.
a. How much interest will the saver earn if the interest is left to accumulate?

FV = PV (FVIF @ 5%, 10)

$1,000 (FVIF @ 5%, 10)

$1,000 x 1.6289 = $1,628.9

Interest = $1,628.9 - $1,000 = $628.9

Answer = $629

b. How much interest will the saver earn if the interest is withdrawn each year?
Interest = $1000 x 5% x 10 = $500
Answer = 500
c. Why are the answers to a and b different?
- The answers to a and b are different because the interest is not getting withdrawn in question a and the interest is getting withdrawn in question b.
2.) A self-employed person deposits $3,000 annually in a retirement account that earns 8 percent.
a. How much will be in the account when the individual retires at the age of 65 if the savings program starts when the person is age 40?
- FV = PV * PMT
- PV of Annuity = $3,000 x [1-(1.08)-25] / 0.08
PV of Annuity = $32,024.33

FV = $32,024.33 x (1.08)25

FV = $219,318

b. How much additional money will be in the account if the saver defers retirement until age 70 and continues the contributions?
- PV of Annuity = $3,000 x [1-(1.08)-30] / 0.08

PV of Annuity = $33,773.35

FV = $33,773.35 x (1.08)30

FV = $339,849.63

Additional Money = $339,849.63  $219,317.83

Additional Money = $120,531

C. How much additional money will be in the account if the saver discontinues the contributions at age 65 but does not retire until age 70?
There will be a decrease in money from b to c
- PV of Annuity = $3,000 x [1-(1.08)-25] / 0.08

PV of Annuity = $32,024.33

FV = $32,024.33 x (1.08)30

FV = $322,249.84

Additional Money = $322,249.84  $339,849.63

Decrease in Money = $17,671

3.) A 45 year old women decided to put funds into a retirement plan. She can save 2,000 a year and earn 9 percent on this savings. How much will she have accumulated if she retires at age 65? At retirement how much can she withdraw each year for 20 years from the accumulated savings if the savings continue to earn 9 percent?
- PV of annuity = $2,000 x [1-(1.09)-20] / 0.09
- PV of Annuity = $18,257.09

No she can withdraw $14,491
7.) An investment generates $10,000 per year for 25 years. If you can earn 10 percent on other investments, what is the current value of this investment? If its current price is $120,000, should you buy it?
- Calculating the PV
PV (10%, 25, 100,000) = $90,770.40
Yes if its current price is 120,000 then I should not buy that investment as the value of that investment is less in the future. Overvalued..

13.) An investment offers to pay you $10,000 a year for five years. If it costs $33,520, what will be your rate of return on the investment?
- Amount of annual payment = 10,000
Time = 5 years
Present value / cost of investment = 33,520
Rate = 5, 10, 000, -33,520 = 15%

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